Markup vs Margin. Knowing The Difference Is Key

Posted by on Nov 13, 2013 in Sales | 0 comments

Markup vs Margin rbbaird via Compfight

Markup vs Margin. Knowing The Difference Is Key

When we run a business we all realize that it is not as simple as buying a product or service and selling it. We that currently or have run a business know that there are many ratios, percentages and formulas that we have to pay attention to to run a lean and profitable business. We all know that running a business takes operating money much like our bodies need food to create energy that keeps us going day after day and year after year.

The food that a business needs is PROFIT.

Those of us with experience developing and maintaining metrics in our industries know that we could sit here all day and break down any number of ratios and/or percentages that we use to measure the heartbeat of our companies.

That would be pointless….because

  1. you don`t have all day
  2. the ratios and percentages are different in all industries
  3. the most important factor to achieve is profit
  4. let`s keep it simple

In my years in sales I have noticed that many people had a hard time distinguishing the differences between Markup and Margin.

Most new business owners put a tremendous amount of work in setting up their business, hiring employees and finding the right product or service to sell to only price the product wrong. Marking up a product is only taking a percentage of your purchase price and adding it to the cost of the product expecting that the difference is your profit.

YOU ARE LEAVING MONEY ON THE TABLE!!! 

Focusing on Margin for your business will be able to accurately obtain the profit needed to sustain a business without leaving money on the table. Margin is the actual percentage of the selling price from cost. Let break it down in a chart for a those of you that are visual learners.

 

Cost Markup % Markup $ Selling Price Margin % Margin  $ Selling Price Difference $
$100.00 30 $30.00 $130.00 30  $42.85 $142.85  $12.85
$100.00 31 $31.00 $131.00 31 $44.92 $144.92  $13.92
$100.00 32 $32.00 $132.00 32 $47.05 $147.05  $15.05
$100.00 33 $33.00 $133.00 33 $49.25 $149.25  $16.25
$100.00 34 $34.00 $134.00 34 $51.51 $151.51  $17.51
$100.00 35 $35.00 $135.00 35 $53.84 $153.84  $18.84
$100.00 36 $36.00 $136.00 36  $56.25 $156.25  $20.25
$100.00 37 $37.00 $137.00 37  $58.73 $158.73  $21.73
$100.00 38 $38.00 $138.00 38 $61.29 $161.29  $23.29
$100.00 39 $39.00 $139.00 39 $63.93 $163.93  $24.93
$100.00 40 $40.00 $140.00 40  $66.66 $166.66  $26.66
$100.00 41 $41.00 $141.00 41  $69.49 $169.49 $28.49
$100.00 42 $42.00 $142.00 42  $72.41 $172.41 $30.41
$100.00 43 $43.00 $143.00 43  $75.43 $175.43  $32.43
$100.00 44 $44.00 $144.00 44  $78.57 $178.57  $34.57
$100.00 45 $45.00 $145.00 45  $81.81 $181.81  $36.81
$100.00 46 $46.00 $146.00 46 $85.18 $185.18  $39.18
$100.00 47 $47.00 $147.00 47  $88.67 $188.67  $41.67
$100.00 48 $48.00 $148.00 48  $92.30 $192.30 $44.30
$100.00 49 $49.00 $149.00 49  $96.07 $196.07  $47.07
$100.00 50 $50.00 $150.00 50  $100.00 $200.00  $50.00
$100.00 51 $51.00 $151.00 51  $104.08 $204.08 $53.08
$100.00 52 $52.00 $152.00 52  $108.33 $208.33  $56.33
$100.00 53 $53.00 $153.00 53  $112.76 $212.76 $59.76

 

Did you notice a difference in profit dollars and sales price? That`s more money than I would care to leave on the table if I were using the wrong pricing method.

Here`s a simple formula to calculate margin sales: (cost/1.00-desired margin % = selling price) in other words if I want 30% profit margin, need to subtract .30 from 1.00 and that would leave me with .70. There are much more elaborate calculation formulas, but my aim is to try and keep it simple.

Remember that:  value x benefit = price and once you have that nailed you are a true salesman.

please let me know if I can help you in any way by emailing me at hugo@thesalespitch.com or please comment below.

 

 

 

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